Your Personal Insurance Coverage: How Much Insurance Do You Need to Protect Your Financial Interests?

*by Guy O. Kornblum, Certified Civil Trial Advocate, National Board of Trial Advocacy and Member Million Dollar Advocates Forum

Published in The New Fillmore July 2002

 

How much insurance protection do you need to protect yourself from damage to your property, injury to yourself or a family member, or protection from liability to others?  What insurance “coverage” should you buy to make sure your personal and financial interests are protected?  These are important questions which most likely are not given the serious thought and consideration by even the most prudent person when the insurance is purchased. 

We often take buying insurance to protect ourselves more casually than we should.  Most likely we do not look at what we have bought in the way of personal insurance until something happens that results in a claim to our insurance company.  Most of the time we “trust” an insurance agent or company to advise us as to what insurance coverage we need.  It is only when we discover that we have inadequate protection that we become aware of mistakes that we made in buying insurance. 

Types of Personal Insurance

On the personal side, there are three type of policies to consider.  First there is an automobile policy that provides insurance for us as owners and drivers of our owned vehicles.  Second there is homeowner’s insurance which protects us from losses arising out of home ownership or as tenants.  Third, there is “umbrella” coverage, which can add to the protection that we purchase on our autos or home.  I will discuss all three and comment on some of the factors you should consider.

Auto Insurance

Let’s talk about auto insurance first.  Auto policies provide more than just protection from lawsuits by others against you arising out of an auto accident.  This is called “liability” coverage, which is called “third party” coverage because it protects you from lawsuits by third parties.  There is also coverage for damage to your car, medical payments coverage to pay medical bills for those who are in your car and are injured in an accident, and some miscellaneous coverage, such as for contents which are damaged or stolen.  These latter provisions are referred to as “first party” coverage because the insurance company pays you for the losses.  These coverages are subject, in some cases, to deductibles, and in some case “limits” on the amount the insurance company is obliged to pay.  

As to liability protection, there are two parts: first is the “defense” of any lawsuits against you arising out of your ownership or use of the car.  This coverage provides that the insurance company will pay for a lawyer – and related court costs – to defend you and anyone else legally responsible for an injury to another because they were driving or using your car.  As an owner, you are responsible for those whom you allow to drive your car.  Thus, your insurance policy will provide this important coverage to you and your “permissive” users.  The insurance company  engages a lawyer or law firm experienced in “defending” those who are sued for wrongs committed while using an insured vehicle.  There are generally no “limits” on the fees for a lawyer or the court costs; the insurance company must pay whatever the reasonable fees are and any court costs assessed against you.  You do not pay anything for this defense.

Second, there is “indemnity” protection, which is the amount of insurance available if there is a settlement or judgment of that lawsuit against you.  There are dollar “limits” to this protection.  The minimum coverage you are required to have by law in California is $15,000 for any one claim arising out of an occurrence (i.e. accident) and $30,000 in the aggregate (i.e. total) for any one occurrence.  Thus, if there are three persons making a claim against you because of an accident with your car, the most the insurance company would pay to any one of them is $15,000.  The most the insurer would pay for the accident is $30,000.  If all three have claims exceeding $15,000, then the amount of insurance available is still only $30,000.

These required “limits” are not adequate to protect the financial resources of many who read this.  The problem is that the “limits” of coverage do not define your potential liability to someone you injure.  You are personally responsible for any amount assessed against you over and above the insurance protection you have.  So if there is a judgment against you by one person for $100,000 and you have the minimum limits of $15,000, you must pay the $85,000 difference.

Depending on how you structure the coverage, and whether you buy an “umbrella” policy (see below), you should consider limits of at least 100/300.  Higher limits are available, so if you have substantial assets to protect, you should discuss the appropriate “limits” with your insurance company.

Your insurance company can offer other valuable protection by providing first party coverages.  These include a “no fault” collision coverage for repairs to your vehicle.  That is, if you are in an accident, your insurer will pay you the fair market value of the car (minus any deductible) if the car is “totaled” (i.e. repair costs are more than the value of the car), or the repair costs (also minus the deductible).  This coverage applies no matter who “caused” the accident.  If you are at fault, your insurance company will still provide this protection.  However, if another driver is at fault, once payments are made under this coverage, your insurance company is “subrogated” to your rights to a property damage claim against the offending driver (usually his or her insurance company – if there is insurance), and will attempt to collect what it paid to you from that offending driver.  (If that occurs, be sure the insurance company also collects your deductible.)

Another important aspect of auto insurance is “medical payments” coverage, which is like a medical policy within your auto policy.  It pays occupants of your car for medical expenses resulting from injuries sustained in an accident – again without considering fault.  This can be a very important coverage if you or your passengers are injured and need medical care.  The “limits” under this coverage are most often $5000 per occupant, but they can be increased.  I suggest that these limits be as high as you can afford.  They can pay for extra charges which your health insurance may not pay or are available if your health insurance company delays or denies your claim.

Lastly, there is “uninsured” and “underinsured” motorist coverage.  This is a very

important coverage that involves protection when another driver is at fault and either has no insurance or does not have enough to cover the amount owed for injuries to you or your passengers.  For example, if the offending driver has no insurance because he or she did not buy any or because his insurance company denies it was in effect, then your insurance company steps in the shoes of the offending driver as if it insured that driver rather than you.  If the other driver has inadequate insurance, the same result occurs.  That is, if the other driver has $15/30,000 limits and your injuries are worth $100,000, and you have $100/300,000 underinsured motorist coverage, you would have an additional $85,000 of coverage once the other driver’s insurer paid the $15,000 to you.

In a state where 1 in 4 drivers are operating vehicles without insurance – who knows how many are driving with only minimum limits – you should purchase as much of this coverage as you can afford.  By law, the insurance company is required to offer these coverages in the same amounts as your liability limits.  If you have liability limits of $100/300,000, then the insurance company must offer you that amount of uninsured and underinsured motorist coverage.  

An uninsured or underinsured motorist claim is handled differently than a personal injury case arising out of an auto accident, as they are required by statute to go to arbitration rather than court.  There are certain procedural requirements to making this type of claim against your insurance company.  You should consult with a lawyer about your case.  If there is inadequate insurance and the other driver is at fault, be sure to notify your insurance company and comply with what the statute and policy provide as prerequisites to making this claim.

Homeowner’s Insurance

There are similarities between homeowner’s insurance and auto insurance.  Both include liability protection, which includes the “defense” and “indemnity” coverages much like the auto policy with various limits, such as I have discussed.  Of course, the type of liability protection is different because it arises out of persons who sue you because they were injured while on your premises.  The simple example is a “slip and fall.”  Or, if you recall the publicity surrounding the decks that collapsed injuring a number of guests, liability protection in a homeowner’s policy would cover that type of accident and resulting claims.

Homeowner’s policies also include medical payments coverage which would pay the immediate medical expenses for those injured while on your premises, even if you were not at fault.  This is a good protection to include, as it allows coverage for anyone who is a guest of yours who is injured, even if there is no lawsuit against you.  It can help relieve any “guilt” you might feel after an injury, even if you did nothing wrong.

In addition, homeowner’s policies provide other important “first-party” protection if your home is damaged, such as by fire or disaster (except earthquake).  In this event, the policy will pay for the damage to your home and its contents, with certain restrictions, after any deductible is applied.  It may also cover theft of the contents of your home (reductions in premiums can be obtained by having various security devices and smoke alarms.)  

But be careful here: There are important coverages that you should have to make sure you are fully covered and do not end up paying for a large part of the loss.   Here are the basic “first-party” coverages and my suggestions:  

Structures Coverage 

This coverage applies to damage to your home – the house or building.  Normally the insurance company will pay the depreciated value of the damage unless you repair.  If you repair the damage, the policy should cover all costs of repair and replacement to your home on a current “replacement cost” basis – that is with new materials of  “like kind and quality” to what was damaged.  You may also need to purchase some “upgrades” to this coverage.  For example, you can add coverage which pays for upgrades based on building code changes since the home was built or remodeled.  Also be sure you have adequate limits to cover the cost or repair and replacement of your home as it increases in value and the costs of materials increase.  Some homeowner’s policies contain automatic increases on a percentage basis of the limits every year or so.  That is wise protection to add if it is not covered in the basic premium.

Contents Coverage

This covers damage to the contents of your home.  Again, you normally would get a depreciated amount unless you repair or replace.  If replacement is in order, the requirement is that you get new equipment or furniture of “like kind and quality.”  However, there can be very low “limits” on valuables, such as antiques, art, jewelry and other fine items.  In order to get greater protection, you will likely need an appraisal (which sometimes the insurance company or agent will pay for) and attach it to your policy.  These are “specially scheduled” coverages provided in the amounts for each item based on the appraisal.  That appraisal needs to be updated on a regular (i.e. annual) basis.  

Additional Living Expense 

If you are displaced from your home because of fire or theft or some other covered cause of damage to your home, your insurance company will provide the money for a temporary place for you and your family to live.  Usually there is no monetary limit on the amount, but it is based on the cost of renting a temporary residence of the same type as your home.  In San Francisco, the cost can be considerable, and that fact is taken into account in the premium you pay for this coverage.  While there are no monetary limits on this coverage, there is a time limit.  The common period is one year from the date of loss, or when the home is ready for occupancy, whichever is earlier.  Thus, if there are substantial delays and you cannot get back into your home within the period during which the insurance company will pay for your temporary residence, you would have to bear this cost yourself.

Debris Removal and Miscellaneous Coverages

Your policy will provide for removal of debris and damaged structures and contents.  It may also provide some limited protection to any outbuildings, gardens, plants, and lawns, but check your policy if you have these areas at your home to make sure you have the proper protection.

Umbrella Coverage

Most companies will issue an additional policy over your auto and homeowner’s policy to raise the limits on your liability protection and the uninsured and underinsured motorist protection you have in your “primary” auto policy.  For example, if you have $100/300,000 liability limits on your auto and homeowner’s policy and want more protection, you can purchase an umbrella policy that will raise those limits by $1 Million and greater, depending on how much umbrella coverage that insurer will accept.  This is critical coverage if you have assets to protect.  Remember, once any limits are exhausted, you are personally responsible for any amounts assessed against you for injury you have caused others.  In the case I have just described, you would have an additional $1 Million of liability protection over both your auto and homeowner’s policies, and you would also have that additional insurance as protection against claims against uninsured and underinsured motorists.

It is much easier to obtain this coverage if you buy your auto and homeowner’s policy through the same company and ask that company to issue an umbrella policy as well.

Some Recommendations

  1. I highly recommend having an insurance agent who advises you on what insurance your should have.  You need an insurance professional to review your needs, make recommendations, and make sure you buy the right protection.  Check with others about who is well qualified and provides the service that you should get from someone handling such important matters for you.
  2. Review your insurance needs every year with your insurance professional, and consider making the changes you need so that you continue with the appropriate insurance coverage.  This would include upgraded appraisals of your home or personal property so that limits and schedules are adequate.
  3. Consider increasing deductibles to the highest allowed amounts IF that will help keep the premium down, and use any savings to increase your limits of coverage or to purchase an umbrella policy.  This is a sound approach.  Generally, insurance companies charge more for lower limits because it means you are likely to make more claims for smaller losses which are costly to process.  What is better is to have more “upper limits” of protection in the event of a large loss or claim against you.
  4. If you have a major loss, contact an experienced lawyer and go over your claim.  Unless there is a major problem, the cost of a consultation with a knowledgeable lawyer will not be great, and the value to you may be high.  You do not want to overlook an avenue of coverage.  If there is a large loss, then you should engage a lawyer to help you through the claims process.  In addition, your agent should be an advocate for your position on any problems that arise, so he or she should be involved from the outset.
  5. In the event of a claim, notify your insurance company promptly.  In many cases, they can help you.  However, if, in the process, the insurance company representative is adversarial or appears to be challenging you, it’s best to notify your agent and talk to a lawyer.  Early “intervention” by knowledgeable professionals may short cut a dispute that is brewing.

Be sure you are getting the value for your premium and the protection you need to safeguard your family, yourself and your personal assets.  Obviously, making sure you have what you need BEFORE you need it, is the most prudent approach!

 

*Mr. Kornblum is the principal in Guy Kornblum & Associates, a San Francisco based law firm that specializes in representing clients in mediations, trials, arbitrations and appeals.  Mr. Kornblum has had his own for firm for over 30 years.  He is certified in Civil Trial Advocacy by the National Board of Trial Advocacy and is a Charter Fellow, Litigation Counsel of America Trial Lawyer Honorary; a Life Member, Multi-Million Dollar Advocates Forum; a Platinum Member, The Verdict Club, which recognizes “the superior accomplishments of its professionals as measured by the achievement of significant settlements and verdicts;” and a The Legend Society Top Lawyer.  Mr. Kornblum has taught law at local law schools and has co-authored three legal texts, the latest, “Negotiating and Settling Tort Cases,” 2 Volumes, published by the American Association for Justice and Thomson West Publishing Company.

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